Starbucks Awards HRO Deal to Convergys

July 12, 2007

Starbucks has awarded a multiyear HR business process outsourcing deal to Convergys, marking the second big-name client that the Cincinnati-based provider has won this year.

U.S. and Canada as well as take over benefits administration for Starbucks’ employees in Canada. Starbucks has 145,000 employees globally, “the majority of whom are in the U.S.,” says spokesman Brandon Borrman. He declined to comment on the length or value of the deal.

Without knowing the terms, it’s difficult to guess its value, but analysts estimate that it’s below average.

“The average deal is around $400 to $500 per employee, and I would expect that this is much lower,” says Michel Janssen, managing director at the Hackett Group, noting retail employees aren’t as costly as other industries.

Assuming that the contract is seven years, the average length of most HRO agreements, IDC estimates the value of the contract to be between $350-400 million, well below some of the industry's biggest deals, which range around $1 billion.

Regardless of the deal’s value, the Starbucks contract is a good win for Convergys because it’s such a big brand name, says Jason Corsello, a vice president at human capital management consulting firm Knowledge Infusion.

“Brand is very important, because this is a ‘me too’ market and early adopters like to see their competitors in their industries doing the same thing,” he says. To date, there have been few HRO deals in the retail sector, but this contract could spark more, Corsello says.

Corsello believes Convergys won the deal because, unlike other HRO providers, it’s willing to take on just some of the HR processes with the hopes of adding on to the deal later, rather than taking on all processes at once.

“Convergys is willing to build up, while Accenture and IBM really only want the big-bang deals,” he says.

For Starbucks, the agreement with Convergys enables the coffee retailer to continue growing at an aggressive pace, Borrman says.

“This is a way for us to continue to grow our infrastructure,” he says. Starbucks plans to add 10,000 stores in the next four years, which averages out to about six stores a day. The deal will affect some jobs within the company, but Starbucks will find other positions for those employees, Borrman says.

The reasons behind Starbucks doing this deal are significant for the HRO industry, Janssen says.

“This is probably one of the first deals I know that was signed because of the client’s need to grow, rather than fix a broken platform,” he says. And that’s bodes well for the HRO industry, according to Janssen. “What this is saying is that it’s no longer just about saving costs, it’s about supporting growth strategies,” he says.